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(B)(N) DB Deutsche Bank AG

June 14, 2013

Drama. The banks are a service but not an investment. Our money is, for the most part, safe in the banks – but not entirely “safe” because we might not be able to get it when we want it – but our money is seldom safe on the banks and they – the banks – make it easy for investment consumers to confuse the two.

Publications of Deutsche Bank's Historical Institute

Courtesy: Deutsche Bank since 1870 in Frankfurt

After all, if it’s in the bank – and it’s already there – why not on the bank or any of the other manifold investment products that they might have for us, none of which is guaranteed and, therefore, even less safe than our money in the banks.

How bad can it be?

October 29, 1929: Merger of Deutsche Bank and Disconto-Gesellschaft

October 29, 1929: Merger of Deutsche Bank and Disconto-Gesellschaft

Well, in 2008 and 2009, the total assets of the Deutsche Bank declined from $3 trillion to $2 trillion while its own shareholders equity increased from $43 billion to $53 billion, and we can be sure that $1 trillion that somehow vanished was not our take home pay for the year.

Whatever happened to the “old guys” who made sure that our money in their bank was always “as good as cash” and their investments  were “better than money” (Reuters, June 14, 2013, Exclusive: Deutsche Bank ‘horribly undercapitalized’ – U.S. regulator).

What we look for in a bank is a stock price performance more akin to that of Colgate-Palmolive (please see Exhibit 2 below) which also has global ambitions; is seriously regulated by the FDA and many other jurisdictions; and pays a dividend of better than 2%; and has a stock price performance unlike that of a gold mine in Zimbabwe. Please see Exhibit 1 and 2 below.

Given the choice, would we buy Colgate-Palmolive (Exhibit 2) or Deutsche Bank (Exhibit 1) to keep our money safe and warmly appreciated?

Of course, we’re not sure that FDIC Vice-Chairman Mr. Hoenig’s complaint (ibid, Reuters) is either meaningful or material to the way in which banks need to conduct their business today. For example, the Deutsche Bank has taken steps to correct its apparent equity imbalance by selling about 10% of its own stock into the investment markets since 2008. Please see Exhibit 1 below to appreciate the effectiveness of that policy.

And other banks look to be similarly bad (ibid, Reuters), and as noted in a communication from the Berenberg Bank, Germany’s oldest private bank and founded in 1590, that while they are still concerned about the leverage in the business, for the bank to get above the 3% level mandated by the Basel Accords, it will require at least four years’ worth of profits and will delay dividends. Pity.

Exhibit 1: (B)(N) DB Deutsche Bank AG – Risk Price Chart

(B)(N) DB Deutsche Bank AG

(B)(N) DB Deutsche Bank AG

Deutsche Bank AG is a global investment bank. It offers a wide variety of investment, financial and related products and services to private individuals, corporate entities and institutional clients around the world.

(Please Click on the Chart to make it larger if required.)

From the Bank: Deutsche Bank Aktiengesellschaft provides investment, financial, and related products and services. The company’s Corporate and Investment Bank division engages in the origination, sale, structuring, and trading of bonds, equities and equity-linked products, exchange-traded and over-the-counter derivatives, foreign exchange, money market instruments, securitized instruments, and commodities to sovereign countries and multinational organizations; and medium-sized companies and multinational corporations. It also offers mergers and acquisitions advisory, corporate finance, and transaction banking, as well as trade finance, and trust and securities services for financial institutions and other companies. Its Private Clients and Asset Management division provides mutual funds and alternative investment products; wealth management services to high net worth individuals and families; and investment solutions to individual and institutional customers, as well as manages real estate and infrastructure investments, private equity funds, and insurance assets. This division also offers a range of banking products and services, including current accounts, deposits and loans, and investment management and pension products to private and self-employed individuals, and small to medium-sized businesses. The company’s Corporate Investments division’s principal investment activities comprise private equity and venture capital investments, corporate real estate investments, credit exposures, and credit facilities. As of December 31, 2011, Deutsche Bank Aktiengesellschaft operated 3,078 branches in 72 countries worldwide. The company was founded in 1870, has 100,000 employees, and is headquartered in Frankfurt am Main, Germany.

Exhibit 2: (B)(N) CL Colgate-Palmolive Company – Risk Price Chart

(B)(N) CL Colgate-Palmolive Company

(B)(N) CL Colgate-Palmolive Company

Colgate-Palmolive Company is a consumer products company. The Company manages its business in two product segments: Oral, Personal and Home Care; and Pet Nutrition. It manufactures and markets products for Home Care.

(Please Click on the Chart to make it larger if required.)

From the Company: Colgate-Palmolive Company, together with its subsidiaries, manufactures and markets consumer products worldwide. The company operates in two segments: Oral, Personal and Home Care; and Pet Nutrition. It offers oral care products, including toothpaste, toothbrushes, and mouth rinses, as well as dental floss and pharmaceutical products for dentists and other oral health professionals; personal care products comprising liquid hand soaps, shower gels, bar soaps, deodorants, antiperspirants, shampoos, and conditioners; and home care products, such as laundry and dishwashing detergents, dishwashing liquids, household cleaners, oil soaps, bleaches, and fabric conditioners. The company provides its oral, personal, and home care products primarily under the Colgate Total, Colgate Sensitive Pro-Relief, Colgate Max Fresh, Colgate Optic White, Colgate Luminous White, Colgate 360°, Colgate Plax, Palmolive, Protex, Softsoap, Sanex, Irish Spring, Speed Stick, Lady Speed Stick, Caprice, Ajax, Axion, Fabuloso, Murphy’s, Suavitel, Soupline, Sorriso, Kolynos, elmex, Tom’s of Maine, and Mennen brand names to wholesale and retail distributors. It also offers pet nutrition products for dogs and cats. The company markets its pet foods through pet supply retailers and veterinarians for everyday nutritional needs under the Hill’s Science Diet brand name; and a range of therapeutic products through veterinarians and pet supply retailers to manage disease conditions in dogs and cats under the Hill’s Prescription Diet brand name. Colgate-Palmolive Company was founded in 1806, has 40,000 employees, and is headquartered in New York, New York.

The Price of Risk

The calculated Risk Price (SF) is a provably effective estimate of the “price of risk” which is “the least stock price at which the company is likeable” (Goetze 2006) and “likeability” is determined by the demonstrated factors of “risk aversion” – we want to keep our money and obtain a hopeful return above the rate of inflation – and the properties of portfolios of such stocks. Stock prices that are less than the price of risk can be said to be “bargain prices” but with the risk attached that the company might never get a higher price other than that due to ambient volatility or “surprise”; on the other hand, investors who are willing to pay the “full price” above the price of risk, and buy and hold the stock at those prices, must also be confident, and have reason to believe, that the company will produce those values, absent new information.

Please see our Posts, The Price of Risk, August 2012 and The Nash Equilibrium & Its Stock Price, October 2012, for more information on the theory.

To see what else “risk averse” investing can do for us, please see our recent Posts, The Wall Street Put, April 2013, and earlier Posts such as The Dow Transports, March 2013, or The Risk Adjusted Dow, March 2013, or The Canada Pension Bond, February 2013, and for a more colorful description of investment risk and the application of the “price of risk” to mergers & acquisitions, please see our Post, Bystanders & Collateral Damage, April 2013.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond™“
Alpha-smart with 100% Capital Safety and 100% Liquidity”
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.Disclaimer Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.

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